The shameful self-dealing of America's superrich
What JPMorgan's Jamie Dimon and Yahoo's Henrique De Castro tell us about the state of the union
Barack Obama's State of the Union address will reportedly contain some modest proposals to address economic inequality in America. But of course there’s little chance that the Republican-controlled House of Representatives will take up and pass any of them.
Another day, another lost opportunity to halt (let alone reverse) the evolution of the United States into an oligarchy.
That evolution is something that should deeply trouble all Americans, regardless of ideological disposition. But that will only happen if we’re clear about the precise nature of the problem.
Talking about it in terms of inequality obscures the issue. Conservatives and libertarians are right to note that inequality in the abstract shouldn’t be a problem as long as there’s upward mobility for the vast majority of Americans; it’s okay (at least in the short-to-medium term) for the rich to be getting richer at a faster rate than the rest of us, provided that the rest of us are in fact rising over time.
Unfortunately, though, economic mobility has been declining in the U.S., with some studies purporting to show (in defiance of every conservative and libertarian nostrum) greater mobility in the highly taxed and regulated quasi-socialist economies of Canada and Europe.
But leave that aside for the moment.
The deeper problem, as Paul Krugman regularly reminds his readers, is steeply increasing inequality at the very top of the economic hierarchy. Yes, the top 5 percent of income earners are getting richer at a faster rate than the rest of us. But the top 1 percent are getting richer even faster — and that’s nothing compared with the top .1 and .01 percent.
Why is it happening? Part of it is undoubtedly a result of the greater opportunities for wealth generation that are enjoyed by rich people everywhere. Turning $1 million into $10 million is usually easier than acquiring the $1 million in the first place — and, all things being equal, turning $10 million into $100 million is even easier.
But this skirts the issue of income and other forms of remuneration enjoyed by those at the top of the American economic hierarchy — and that’s what should be causing the greatest civic concern.
Consider this fact of life in America today: If you’re laid off from a service job, you’re likely to receive nothing in compensation from your employer and only time-limited unemployment benefits from the government to help you keep your head above water. If you’re lucky enough to belong to a union, meanwhile, you’ll probably also receive some severance pay to keep you afloat for a few weeks or months as you look for a new job.
But what if you’ve been summarily fired after a little longer than a year on the job as the No. 2 employee at a major American corporation — a position that already paid you at an annual rate of roughly $40 million? In that case, you may well walk away with a severance package totaling more than $60 million, bringing your total 15-month compensation to somewhere in the vicinity of $109 million.
But at least Henrique De Castro got fired as Yahoo’s chief operating officer. Jamie Dimon, CEO of JP Morgan Chase, managed to get himself a raise of $8.5 million even though he’s overseen a period in which the bank lost upward of $6.2 billion thanks to a rogue trader, and reached settlements to pay penalties in the range of $15 billion to the Justice Department (see here and here) and $4 billion to the Federal Housing Finance Agency.
The problem with De Castro and Dimon is not merely — or primarily — that they’re earning absurdly large sums of money. It’s far more that they’re taking home this level of compensation despite having done their jobs poorly.
At the loftiest heights of the income pyramid, American meritocracy is broken, replaced by the shameful self-dealing of the superrich.
All of us recognize the way the breakdown in meritocracy is playing itself out closer to the middle class. In theory, capitalism provides equal opportunities to every individual, allowing him or her to use innate talent and ambition, combined with more than a dash of luck, to achieve economic success. Also in theory, economic failure is supposed to be justly earned, a product of a deficiency of talent, ambition, and luck.
The reality, of course, is very different — and becoming more so with every passing year. We start out our lives profoundly unequal. Some Americans grow up impoverished, attending chaotic, academically worthless schools, and exposed to an enormous range of social and cultural obstacles to achievement both at home and in the local environment. Others, by contrast, receive a world-class education at school, continual emotional and scholastic support at home, access to tutors, test-prep, and even pharmaceuticals to compensate for a range of cognitive and behavioral deficits.
That’s nothing compared with what we see at the very top of the income hierarchy. The upper middle class might enjoy all kinds of advantages over the poor and lower middle class in getting their children into elite colleges. But the superrich play by different rules. An upper middle class mom might be able to use a network of well-connected friends and colleagues to get her son an interview at a top firm shortly after graduation. But Henrique De Castro’s boss gets herself invited to the White House for some face time with the president of the United States.
America is well on the road to producing a class of self-perpetuating, self-insulating, self-aggrandizing oligarchs who enjoy luxury, power, and access many orders of magnitude greater than anyone else in the nation.
Liberals typically talk about this issue in terms of ideology — as if the problem with America producing an oligarchic elite is that its members will invariably work in tandem with the Koch brothers in supporting right-wing Republicans. But there is plenty of ideological diversity among the superrich.
Far more worrying is the tendency of the superrich to use their wealth, power, and influence to further their own interests as a class — doing their best to ensure that neither political party does much of anything concrete or specific to diminish that wealth, power, and influence. That is the oligarchic aim: To enhance the dominance of the superrich over the American economy and political culture to such an extent that they become effectively untouchable. Not only are they insulated from the meritocratic checks of the market, but also from government oversight and regulation, living lives far above and beyond the rest of us.
What can be done to slow or stop the march toward oligarchy? For starters, we could build on the Obama administration’s tax policies, which have already raised the top effective federal income tax rate to its highest level since 1979. That change should be augmented by a highly progressive luxury income tax that includes dramatically higher rates on income earned above $10 million, with even higher levels imposed on income above that.
The imposition of such a tax, or series of taxes, would surely inspire plenty of paranoid, self-pitying, historically ignorant outbursts on the part of the superrich. But that would be a price well worth paying.
Take a substantial chunk of Henrique De Castro’s roughly $60 million severance package, and he’ll still be pocketing more money than 99.99 percent of Americans will ever earn. But it might also have a reasonable chance of persuading corporate America to set a ceiling on compensation just shy of obscenity.